Finance – Kraft Analysis Essay Sample

The inception of Kraft started when, “J. L. Kraft started selling cheese form a horse drawn wagon in 1903 (Kraft 2012).” Kraft grew and evolved becoming one of the most profitable companies in the world. Through their history, it developed different products and soon became the heart of America. Kraft foods have been providing an extra hand to the families across the world, with their easy preparation foods and beverages. This American conglomerate is comprised of many companies including Nabisco, General Food, Phillip Morris, and Kraft. Kraft’s portfolio is comprised of many brands such as: Oreo cookies, Maxwell House coffee, Macaroni and cheese, and Marlboro cigarettes.

Kraft food’s corporate headquarters are located in Northfield, Illinois. The Chief Executive Officer and Chairman is Irene Rosinfeld. Irene was inducted as Chairman of Kraft foods in March 2007 and C.E.O. in June 2006. She has been an avid employee for Kraft for over twenty years and has held many positions within the corporation. Kraft employs 127,000 people worldwide and has operations in more than 75 countries globally. These countries encompass North America, Latin America, Europe, Middles East and Africa (Kraft 2012). Additionally, Kraft has 223 manufacturing and processing facilities around the work and 15 research and development centers (Kraft 2012).

Financial Statements

INCOME STATEMENT:

BALANCE SHEET:

STATEMENT OF CASH FLOWS:

STATEMENTS OF EQUITY:

Summary of Financial Statements
Income Statement
For the years which ended Dec 31, Kraft Foods generated $54,365 million in net revenues from goods sold to customers in 2011. This figure was a 21% increase from the previous year which had a net revenue of $49,207 million. In summary, sixty percent of net revenue was generated. The goods sold to produce revenue which is also called cost of sales was $35,350 million, the deduction of the cost of sales by the net revenue resulted in a gross profit of $19,015 million. There were a few operating expenses which were selling, general, and administrative expenses, these expenses accumulated to $12,140 million.

In addition, to those expenses, there were also asset impairment charges and exit losses which costs -$6 million, and amortization of intangibles which ended up being $225 million. The operating income increased by 6,667 million. Interest and other expenses, net amounted $1,885 million, since interest expense is money borrowed it is considered as a non-operating expense. The difference of the operating income and the non-operating expense is the earnings from continuing operations before income taxes (EBIT) which was $4,772 million. After all the taxes and earnings were accounted for the net earnings attributable to Kraft Foods was $3,527 million. Balance Sheet

In a balance sheet there are two main categories under assets which are: current and non-current (long-term). The current assets of Kraft Foods for 2011 were cash and cash equivalents which was $1,974 million. Cash is the most liquid asset; these include money in unrestricted checking accounts, negotiable checks, etc. Due to the Kraft and Cadbury acquisition, there were many current and long term assets that were increased. Receivables and Inventories were some of a few. Receivables went up to $6,361 million and inventory also increased to $5,706 million. Next, listed are deferred income taxes totaling to $912 million and last but not least, other current assets which were $1,249 million. In summary, the total current assets amounted to $16,202 million. Subsequently following the current assets are the non-current or long-term assets. These are the tangible assets, investments, intangible assets, and other.

Property, plant, and equipment includes land improvement, building and building equipment, machinery and equipment, in progress construction, and a deduction of accumulated depreciation. All of the property, plant and equipment totaled to $13,813 million. Intangible assets are assets that are not physical; Kraft Foods generated $25,186 million in intangible assets which was decline from 2009 and 2010. The other non-current assets include Goodwill, Prepaid pension, and other assets bringing the total assets to $93,837 million, which is still less than 2010’s 95,289 total asset count. Liabilities can either fall into current or long-term, just like their counterpart, assets. To begin, Kraft Foods increased their short term borrowings by $182 million. Next, on the balance statement was the current portion of the long term debt which reached $3,654 million from $1,115 million in one year. Accounts payable was recorded at $2,863 million, following by accrued marketing at $2,863 million, accrued employment costs at $1,365 million, and other liabilities that were $4,856 million. In addition, total current liabilities amounted $18,445 million.

The next category is long term debt which decreased from $26,859 million in 2010, to $23,065 million in 2011. Deferred income taxes increased as well by adding $6,738 million to long term liabilities. Accrued pension costs and post retirement health costs are additional factors which amounted to $3,238 million more. Afterwards, there were other liabilities that summed up to $3,396 million. In essence, total liabilities came up to $58,509 million, which was a $838 million difference from the previous year. The next category is equity, usually called stockholder’s equity on a balance sheet. Kraft Foods started this section out with $31,318 million in additional paid in capital. Next, was $18,012 in retained earnings and after that, there were two losses, one was for $6,637 million for accumulated other comprehensive loss and the other was $7,476, and that was for treasury stock. Therefore, the total Kraft Food shareholder’s equity was $35,217 million, in addition to the non controlling interest which was $111 million which then, brought the total equity to $35,328 million. Hence, computing the total of liabilities and equity equals $93,837 million. Assets = Liability + Shareholder’s Equity

Statement of Cash Flow
The statement of Cash Flows deals with liquid investments, cash and cash equivalents. Kraft Foods had $3,547 million in cash provided by operating activities. There were few deductions due to payments for acquisitions of inventory, payments to employees, payments to government taxes, payments of interest expense or payments to suppliers for other expenses. The cash flow subtractions included asset impairment and exit costs, receivables, inventories, and other current liabilities. This brought the total net cash provided by operating activities to $4,520 million. Next on the statement of cash flows were cash used in investing activities which amounted in $-1,728 million. Subsequent to the investing activities, are the cash provided by financing activities.

Ratios and the Industry Averages

Key Statistics
The most recent quarters have resulted in producing decent trailing price/earnings per share of 19.89 (Yahoo Finance 2012). The forward price/earnings per share is conducted by calculating the earnings projection for one year. This calculation should coincide with the market industry average, anything that is ranging from 10 and below is incredibly low, as well as numbers that are 30 and above are considered high. The price/book ratio helps the investor understand the growth in the company as far as their assets etc and where they stand. Kraft has a 2.08 (Yahoo Finance 2012) which is shows that it is a fairly good company with continual growth. Kraft’s operating margin is 13.72% (Yahoo Finance 2012) which is good in comparison to the industry average. As seen in the graph above, Kraft has a great amount of debt; on the other hand, they have many different companies that represent Kraft Foods so there are an abundance of assets with in this company. In essence, Kraft has maintained their overall cost control by their 6.62% (Yahoo Finance 2012) profit margin. The volatility is less than the market because Kraft’s beta is .30 (Yahoo Finance 2012).

Regression Analysis

Regression Analysis Graph

In establishing the closing price, an analysis of a 5 year price history of Kraft Foods had to be prepared. Then in order for the results to be read accurately, a substitution of the dates had to be changed to time codes. After, thoroughly going through the steps of the regression, a graph and summary output was produced with the results of the 5 year historical prices. The ending closing price equation was 26.74408197 + 0.158234268 * Timecode. Forecast

Forecasting for OCT 2012

This forecasting method was Moving Average and it was done by The DecisionTools Suite Software created by the Palisades Company. All of the data shown above produced a forecast for Oct 2012 of 31.26. The result of this forecast is lower than the 52 week low because as of October 2011 the low was 31.88. Judging by this forecast, I would not disqualify KFT and categorize it as a bad buy because of the history. October’s forecast shows higher than September’s forecast so although; it has decreased from Jan 2012. Now, when analyzing the real closing prices they are much higher than the forecasts and September was actually in the 52 week high category. Although, forecasts are supposed to be educated predictions based on the facts and figures of the past and present, I will not dictate my decision based on just the forecasting results. In conclusion, I do believe that Kraft would be a good buy and I will recommend it to investors. They are a reputable company and they’ve been doing well over the years and proven to be a Fortune 500 company.

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